By Mark P. Dangelo
Increasingly, alliances and their dependent relationships are a critical component within our business and technology go-to-market offerings. Alliances range from simple forms of operational provisioning (e.g., vendors, sales forces, expense management) to strategic relationships between firms (e.g., sharing of revenue, joint ventures, market collaboration) – and permutations of “everything in between”. For some, alliances represent a new form of currency to expand capabilities, while improving margins.
Furthermore, regardless of organizational size, alliances are necessary modules in our delivery to customers (i.e., B2B, B2C, and P2P), and even as an element in influencing industry regulations and risk mitigation (e.g., associations). Our organizational operations passively and actively use alliance relationships in both formalized and ad-hoc structures –beyond a logo on a web page or a press release advocating a spirit of cooperation.
Today’s alliances are foundational building blocks used to connect highly-fragmented markets with bespoken offerings hemmed in by global economic and currency uncertainty (i.e., “Why hire when we can source to outside experts?”).
Yet, for all their potential, the on-going tit-for-tat saga being played out between Oracle and HP, exposes the deep seated vulnerabilities of traditional alliances and the approaches used to transform and govern them. Whereas, most finance and mortgage group (FMG) operations are not as complex or interconnected as these billion dollar technology giants, their alliance deterioration demonstrates the downside consequences of assuming these relationships are risk-free.
To discover alliance lessons learned, we need to pose five key questions:
· What are the formal or informal alliance goals, objectives, and expected contributions?
· Beyond the legal documents, what does the alliance comprise – end-to-end?
· What is the impact – quantitatively and qualitatively — when they are non-performing?
· How have they changed from their inception and are they still relevant (i.e., how are they measured against today’s benchmarks)?
· What happens with the alliances, relationships, and businesses, which were built upon compromise, that end in bitter divorce?
As a financier and serial entrepreneur recently stated, “Today’s uncertainty and operating demands have put increased pressure on organizations to produce results regardless of the relationship consequences. The result appears to be manifesting itself in unprofessional behavior, broken promises, and every man for themselves. In general, old alliances are fast becoming inconvenient with a ‘buyer-beware’ position.”
Indeed, it may be a good time to apply lessons learned to our own business and technology alliances – before they end up on the front pages or worse yet, in a court of law. Let’s examine just a few of the unfolding challenges confronting today’s alliance initiatives.
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Lesson #1: T-Squared (Timing and Trustworthiness)
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For many, this is the most important aspect of their alliances. Timing is not only important for payments, identifications, turnarounds, and resolutions; it demonstrates cross-organizational commitment and longevity. Yet, the time required to reach an alliance (while simultaneously conducting joint pursuits) should not be left to chance. Timing has become a known area where large firms negatively “string out” smaller ones.
Trustworthiness envelopes inter-organization actions, and once breeched, it will unravel the best alliance program. In the publicized Oracle and HP alliance disconnects, both sides are now providing “evidence” and “allegations” that the other is behaving irrationally, and as a result, should not be trusted. More commonly, during negotiations, organizations make-or-break the program by their actions – such as delaying contract T’s & C to avoid payouts. An award for the poorest behavior is given to a large software firm that unilaterally substituted contracts in the middle of negotiations – after clients were introduced into the alliance program. |
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Lesson #2: DAR (Duration, Action, Reward)
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A professional alliance should never be open ended. Forced reevaluation on an annual basis is the norm subject to adherence to preset terms and conditions. Businesses change – so does the need or desire for alliances.
Actions and interlinked responsibility / accountability should be clearly delineated encompassing priorities and budgets. Most alliances stress the separation of IC, ownership, and competition, but few include Addendums detailing how any results are to be identified or achieved – tied to stated and agreed upon alliance goals, objectives, rationale, and implications.
Rewards or payments cannot be, “… at the sole discretion of the company” as some firms would advocate in the fine print. Accounting for results is often more involved than an introduction, a referral, or part of a pursuit team. The percentage, method, and duration of payments are always subject to negotiations and are seldom presented at face value. |
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Lesson #3: MCP (Measurement, Commitment, Performance)
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To be rewarded, alliance programs need to have adaptive, measurement processes to ensure on-going relevancy. Moreover, how profitability is calculated and expenses allocated are sometimes problematic.
Whereas, alliance programs place a burden on the firm joining the plan, what commitment does the alliance provider guarantee should they fail to live up to obligatory performance? Many programs are silent on this effort, but failure to deliver is a leading cause for reputational damages and early termination. What about conflicts-of-interest?
So, how is performance measured? Who owns the contacts and market? If the alliance program is successful (in the eyes of both parties), what constitutes success? It is more than payment terms. |
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Lesson #4: PH (People and Herding)
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As we know, alliances are often used to formalize a growing business relationship. Frequently, when a key person leaves or is moved, the alliance suffers or fails altogether. So ask yourself, is it a business alliance or a personal alliance? The feasibility of alliances often begin with understanding this dynamic and the competitive forces in play.
Some organizations, especially when new products are announced, rush into the markets to sign everyone to an alliance program in an effort to gain breadth and scale – they herd as many as they can into promoting their offering. Recently, we have witnessed increased alliances in services – outsourcing, consulting, and system integrators – as organizations want access to larger books-of-business, while they avoid hiring FTE’s and gain access to local markets. Problems arise for smaller firms partnering with larger ones as these arrangements quickly become one-sided and commoditized – not to mention competitively dysfunctional. |
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Lesson #5: ICE (Issues, Challenges, and Expectations)
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To ensure viability, any alliance must have predefined mechanisms to deal with issues or challenges to the intent. Working relationships will generate frictions, and before they surface, agreed upon workout processes must be created and tested. Without a process to escalate, your only choices are reaching out to the senior executives or hiring legal representation.
Expectation management is continually present in any alliance. Is the partner holding up their promises? Does the alliance hold hidden costs and risks that were masked? How come the arrangement is not benefiting my organization sooner? Dialogue channels and formalized communication must be explicitly identified in every alliance. Too often, especially if executed with passive-aggressive cultures, communications and expectation fall into a chasm resulting in eventual alliance failure. |
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Lesson #6: SWOT (Strengths, Weaknesses, Opportunities, Threats)
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SWOT is a common business approach for the initial definition of an alliance agreement. However, the initial assessments are seldom revisited to ensure accuracy. With the alliance underway, putting stated goals, objectives, and measurements into defined dashboards provides an “at a glance” assessment of progress and value. Additionally, the results may lead to periodic appraisals of assumptions, risks, and issues forcing a revaluation of SWOT and the value of the alliance to the organization. |
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Lesson #7: BUIHTD (“Breaking Up Is Hard to Do”)
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Even the best relationships can experience separation and some even end in divorce – at a minimum, the Oracle and HP arrangement is apparently heading for a separation. Events, reorganizations, mergers, acquisitions, divestures (MAD) and even buy-outs can significantly alter once prosperous alliances. Alliances, just like those forged in reality TV, are constantly shifting and breaking. Forward-thinking preparation can mitigate many of the problems associated with BUIHTD.
Remember, alliance contracts should not resemble employment contracts – this is a surprise to many large software firms. The breakup should not impact the ability to compete or forge new alliances — unless something is provided in return. |
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There is a marked difference in alliances executed during periods of economic expansion versus contraction. The changes for economic rebalancing, which precipitated the start of new alliances, have just begun – currencies, trade, policies, quantitative easing, MAD, protectionism, and regulatory taxes and controls. Therefore, the traditional beliefs behind alliances must be continually called into question. Alliances, and the proposed value brought to the organization, must be rethought.
Confronting alliance dogma represents a key component in creating and sustaining new business, while forging lasting relationships that mutually benefit both parties. How effective are your alliances when you map them to the future of your business – and customer needs?